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Delhaize sees continued tough trading conditions

Belgian retailer Delhaize Wednesday said it sees no improvement to the tough trading environment in the U.S., where it is trying to reposition its stores to better appeal to price-sensitive consumers.

The company said it has continued to slash prices at the expense of margins in a highly competitive marketplace, leading to a 9.1% increase in third-quarter revenue but a 3% decline in operating profit.

Revenue rose to EUR5.81 billion from EUR5.32 billion a year earlier. Organic growth was 2.1%. Operating margin was 4%, with operating profit at EUR 231 million.

Net profit rose 33% to EUR189 million due to a tax benefit, where the third quarter last year saw a tax expense.

"Despite continued tough market conditions, we expect the Food Lion brand repositioning to support our revenue growth in the fourth quarter of the year. In Belgium, the difficult trading environment will continue to negatively impact the fourth quarter's operating profit", said Chief Executive Pierre-Olivier Beckers.

The U.S. accounts for 40% of Brussels-based Delhaize's group sales, and the company is currently revamping its chain of Food Lion stores there to appeal to the cost-conscious consumer. A total of 703 stores have been refurbished to date, and comparable sales in the stores that were revamped last year increased 1.6% in the third quarter, compared to a comparable sales fall of 1.6% for all of the U.S. stores.

Amid fears of rising unemployment and government austerity measures, consumers are increasingly cost conscious and prepared to switch brand to get the best deal, which has led to intense competition among food retailers over pricing.

Delhaize is closing several of its 1,100 Food Lion stores, and instead opening more stores under its Bottom Dollar discount brand in an attempt to benefit from the current economic climate.

Delhaize faces strong competition from U.S.-based peers such as Kroger
KR, -0.75%
and Safeway
SWY, +0.00%
who reacted faster to the economic downturn with price cuts and brand positioning. Competitor Supervalu
SVU, +1.57%
put itself up for sale earlier this year after struggling to hold its ground in such a competitive marketplace and is currently in discussions with potential suitors.

Delhaize reiterated guidance for a drop in full-year underlying operating profit due to increased investment in its U.S. store portfolio, and said it still expects full year operating profit to fall by 15% to 20%, but added profit will come in at the bottom end of the range.

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